Top 5 Mistakes to Avoid as a First Home Buyer

Buying your first home is exciting! It is also something you’ve never done before and we know the process can feel daunting at first.

Let us walk you through the top five mistakes you can avoid and get into your first home sooner..

1. Thinking you need a 20 per cent deposit

Did you know you don’t need a full 20 per cent deposit? What you actually need is 8-10 per cent, and some lenders even allow 5 per cent deposits. But these lower deposits attract Lenders Mortgage Insurance, which we can help you figure out what that means for your loan.

We advise first home buyers to aim for the highest deposit you can save because you’ll have lower repayments and better rates. But, if you can’t achieve the full 20 per cent for your estimated loan requirement, there are alternatives with lower deposits required to get you into your first home sooner.

 2. Waiting to have genuine savings 

Genuine savings is a term used by lenders to describe a specific savings pattern. Generally, banks want to see that you hold at least 5 per cent of the property’s purchase price in one of your bank accounts for at least a 3-month period. The underlying reason for this is wanting to see you are good with managing money.

But, are real genuine savings needed for your home loan? Not always! 

Some lenders allow you to show your money management through your rental history, either via a rental ledger showing 6-12 months rent history or a letter from a licensed real estate for proof.

Some lenders don’t need to see genuine savings proof if you have a deposit of 10 per cent or more.

3. Looking for your forever home

Looking for your first home is a big deal! It can be a very emotional journey searching for, likely, the biggest purchase you have made in life so far. It is easy to get caught up in thinking your first home has to be your perfect forever home.

However, these days it is almost never the case. As your living situation changes, so will your ideal home. If you aren’t married yet, or yet to have children, your ideal home may change as things become less or more important in your life.

Another important lesson here is be wary of “falling in love” with a property. Emotional purchases can lead to overpaying to secure it or a huge disappointment if your offer isn’t accepted.

A wise home buyer knows there is a right property for the right price. If you can’t afford it, move on and keep looking.

 4. Champagne taste, beer budget

When you first start looking at property, you can get a shock at how expensive some homes are. You’ll quickly know the feeling of looking for something that fits your budget but wanting something more expensive that looks more appealing.

But, as we just learned, your first home does not need to be your forever home. Buying something that is out of your price range can lead to financial headaches in the future. Your lender will have given you pre-approval for a certain amount based on your ability to repay the loan. 

Realestate.com.au and Domain.com.au have some good tools to help find slightly cheaper, surrounding suburbs to your “perfect” location. You can also check out Property Value, by Corelogic. This will give you valuable data about suburbs where you are researching and looking to purchase.

 5. Underestimating the costs of buying in Sunshine Coast

Buying a home is more than just saving your deposit and finding the right property. When it come to getting a loan there are costs associated with your purchase and ongoing financial considerations including:

  • Lenders Mortgage Insurance if you have less than 20 per cent deposit
  • Stamp Duty
  • Government Fees
  • Council and Water Rates
  • Strata (Body corporate) Fees if applicable
  • Home and Contents Insurance
  • Legal Costs (Solicitor/Conveyancer Fees)
  • Building and Pest Reports
  • Moving and Connection Costs
  • Changes to monthly repayments due to rates changes

Example of the costs when buying a home on the Sunshine Coast for more than $500,000

James isn’t a first home buyer, so he only gets a partial stamp duty concession on his home purchase and finds the perfect house on Lee Street in Buderim for $555,000. He has around $75,000 in savings, so a little bit more than 10 per cent. In this example, James is wanting to capitalise or add the Lenders Mortgage Insurance to the loan amount so he doesn’t need to pay this up front.

Table of costs of buying a $555,000 house on the Sunshine Coast

PropertyNew Home on the Sunshine Coast
Purchase Price$555,000
Loan Amount$499,500
Lenders Mortgage Insurance$9,080
Total Loan Amount$508,580
Purchase Stamp Duty$10,825
Transfer Fees$1,517
Registration Fees$187
Discharge of mortgage fee$187
Costs of Borrowing$400
Client Legal Fees$1,500
Discharge Costs (if applicable)$300
Other/Sundries:Contents InsuranceStrata & Body Corporate FeesBuilding & Pest ReportsMoving + Connection Costs$2,000
Total Costs$16,729

The total deposit amount required is the total costs, plus his 10% deposit:

Total Costs $16,729
10% home loan deposit $55,500
Total Amount Required $72,229

In this example, while James paid a 10 per cent deposit or $55,500 once you factor in the stamp duty and other costs his deposit is actually closer 12-13 per cent meaning you need your bank deposit plus around 3 per cent. So if you are paying a 5 per cent bank deposit, with stamp duty and other costs you will need closer to a minimum of 8 per cent.

Buying your first home can be a big process, however, you can avoid these home buyer mistakes by working with an experienced broker.

Let us take the stress out of buying your first home, we know the pitfalls and all the hints and tips to make your journey as smooth as possible.

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